Week 6

Question 1

What are the 2 ways of using the Social Return on Investment (SROI)?

Answer 1

1. forecasting: predict how much social value will be created if the activities meet their intended outcomes
2. evaluative: account for the value being created based on outcomes that have occurred

Question 2

What is a social venture?

Answer 2

An early-stage business designed to be profitable and has integrated a social mission

Question 3

What are the 5 steps of calculating the SROI?

Answer 3

1. quantify non-financial impact of operations per unit
2. translate into dollar terms per unit to achieve ‘social cashflows’
3. sum all SCFs for the horizon in question
4. discount SCFs to PV
5. divide by investment to date

Question 4

Name 5 (out of 10) guidelines for including SROI.

Answer 4

1. include positive and negative impacts
2. consider impacts by and on all stakeholders before deciding which are significant
3. only include impacts that a clearly and directly attributable to the firm
4. avoid double counting
5. describe what makes the company different from the industry’s standards
6. only monetise impact when logical
7. put numeric metrics into context
8. address risk factors affected SROI and document choice of discount rate
9. carry out sensitivity analysis to identify key factors that identify SROI
10. include ongoing tracking of social impact

Question 5

Name 3 limitations of SROI

Answer 5

1. mixing up negative social impact and amount required to achieve social benefit (investment)
2. subjective value judgements
3. data quality and availability: measurement, timeframe and comparability (lack of consistency in method)

Question 6

Tell about the Kraft-Heinz and Unilever Case and why it did not work out.

Answer 6

Unilever had created a sustainable living plan (2010) and had its focus on creating social value. Kraft-Heinz had a focus on cutting costs and had no stakeholder-oriented model. Kraft-Heinz share price jumped after bid announcement, but Unilever rejected. In the end: Unilever bought back shares from owners who wanted pay-out and sold assets to improve profit margins. very high stock price after rejection.

Question 7

Want went wrong in this case of Kraft-Heinz and Unilever? (2 things)

Answer 7

1. KH got too focused on cutting costs
2. KH forgot the most important thing for a food company: tasty products that people want to buy and eat

Question 8

Why do firms undertake bids?

Answer 8

1. Positive NPV
2. Synergy: operating or financial

Question 9

What are possible protection mechanisms for preventing such mergers as KF and Unilever? (6 possibilities)

Answer 9

1. issue shares with dispropotional rights given to certain shareholders
2. offer new shares to specific friendly shareholders
3. ‘staggered’ board
4. incorporate in country/state with regulation that hinders takeovers
5. charge legal form: social purpose/benefit
6. go private (extreme)

Question 10

What are the 2 types of agency conflicts?

Answer 10

type I: managers and shareholders
type II: powerful vs remaining shareholders